It has been quite a week, not only in harvest fields but also on the geopolitical front. We all know what happened in the middle east last week and the ramifications of that will surely show up in our markets as we move on. That part of the world holds a lot of strategic interests for a lot of countries and surely will reverberate at some point within our grain markets. Needless to say, it was another week in southwestern Ontario driving my big green combine through some pretty good soybeans.
Grain prices have been pretty disappointing too many farmers in Ontario and Quebec farm country over the last few weeks. For the most part we got adequate moisture this year in fact it was too wet in many locales. However, we also knew that in many parts of the US corn belt it was way too dry and that had many farmers wondering what the USDA was going to come up with when they released their report at noon today. Would we see a reduction in crop size and a reduction in stocks? Would prices improve?
We got our answer to both questions and in fact we have lower crop yields and lower stocks. The USDA lowered the 2023/24 corn production 70 million bushels to 15.064 billion bushels. At the same time, they reduced American soybean production 42 million bushels to 4.104 billion bushels. The corn yield was dropped to 173 bushels per acre and the soybean yield was reduced to 49.6 bushels per acre.
At first glance you would think that the USDA was documenting the effect of the dry weather on both in corn and soybeans as summer ended. However, it is really difficult to say exactly what happened, but grains did gain on the day. It seemed like non-commercials were buyers in this environment or maybe the sell orders just dried up at these price levels. December corn gained 8 cents a bushel on the day and soybeans were up 37 cents per bushel.
As reports go, it didn’t say too much and for those expecting much reduced crop numbers it’s simply not going to happen this year. 173 bushel per acre corn yield is still a very handsome number but a half bushel cut in soybean production is quite significant. On the wheat side of the ledger there is almost nothing to say even though Chicago wheat closed up $0.15 for the day. No matter how you look at the wheat market it is bearish with a capital B.
It just so happens that the value of Chicago wheat is significant for all of Ontario grain growers. It is not lost on me as I travel the concessions around southwestern Ontario that almost everybody is fixated on getting wheat planted in the ground this week especially with rain forecast for this weekend. The cash price that we can receive for this wheat is about $7.37 a bushel next July, which is about half the price it was when the Russians invaded Ukraine. All in all, I expect my farmer colleagues to try to get this wheat into the ground, but I do expect a lot less wheat acreage in Ontario this year.
Ontario and Quebec wheat prices are what they are, largely because of the low value of the Canadian dollar currently fluttering in the 73 cent US level. Of course, this is also helping the soybean price which is approximately $16.30 as of today. Corn prices are approximately $6 a bushel off the combine. Is this enough, especially in a farm input price environment which has been elevated over the last several months? Will it be offset by huge corn yields in Ontario and Quebec and the same for soybeans? Let’s just say the value of the Canadian dollar changes the optics on our Canadian agricultural price equation. Nobody even wants to think about a par dollar even though that would change the dynamics of our farm input situation.
It is hard to say how are foreign exchange situation will work out. As you know I always call the value of the Canadian dollar in an inverse fashion to what the American dollar is doing. The US greenback has been on a tear since July only backing off over the last few weeks. I do expect the Bank of Canada to raise interest rates again, but it’s all just so hard to say. In some regards, the present evolving geopolitical situation might have more to say about the Canadian dollar in the near term over the next several weeks.
Unfortunately, Canada will be a spectator too much of what may become reality. What happens if the middle east troubles erupt into a wider war? What happens if Ukraine Russia thing becomes even messier? What happens if our relationship with India on the other side of the world continues to deteriorate? All of this will surely affect the value of the Canadian dollar as geopolitical concerns send capital into US money markets. Realistically, if any of this came to fruition it should mean a lower loonie.
Keep in mind aside from the geopolitics, the bears are solidly in control of the grain futures markets. However, the bears are tap dancing among all these geopolitical mortar shells. Corn and soybeans have carry in the market and in SRW wheat, it’s almost comical. Like, do we really need to grow it?   Forgive me for that. Just keep those combines rolling next week. Give me good weather and we’ll hope for good things.